Mahindra & Mahindra gains 3% on healthy operational performance in Q2

The management expects tractor demand to remain robust during the upcoming festive season

Shares of Mahindra & Mahindra (M&M) rose 3 per cent to Rs 640 on the BSE on Wednesday after the company reported healthy operational performance in the September quarter (Q2FY21). The stock of cars & utility vehicles company hit a 52-week high of Rs 666 on September 21, 2020.

The company’s operating margin (OPM) improved 370 basis points to 17.8 per cent in Q2FY21 against 14.1 per cent in Q2FY20. The margin performance was attributable to lower other expenses and employee costs. Revenues grew 6 per cent year-on-year (YoY) to Rs 11,590 crore from Rs 10,935 crore in the corresponding quarter of previous year. Profit after tax (PAT) after extra-ordinary items declined 88 per cent to Rs 162 crore from Rs 1,355 crore.

The company said that its strong performance in tractors combined with its ruthless focus on cost has helped it achieve a very high OPM and the Profit after Tax (before EI) in Q2F2021 is just 3 per cent lower than Q2FY2020, despite a substantial fall in other income in the current quarter as compared to the previous year quarter. The exceptional items on account of impairments have led to a drop in the profit after tax in the current quarter as compared to the corresponding quarter in the previous year, it said.

The management is expected that tractor demand will remain robust during the upcoming festive season, on back of the positive factors including reforms in the agri sector.

“In Q2 F2021, the Indian tractor industry reported a growth of 41.4 per cent which is the highest ever Q2 quarter growth for tractor industry. Timely relaxation of the COVID lockdown restrictions for the Agricultural sector supported by healthy reservoir levels, good increase in MSP for Kharif crops and important reforms in the agri sector announced by the government focused on improving the state of agriculture in India in the mid to long term have helped tractor demand to bounce back after April 2020,” M&M said.

The proactive steps from the Reserve Bank of India (RBI) have kept domestic financial conditions easy and system liquidity in surplus. Kharif sowing and the recent Agricultural Reforms portend well for the rural economy. However, the turnaround in urban demand may continue to lag especially the contact-intensive services sectors. Manufacturing capacity utilisation is expected to recover in Q3 and activity to gain some traction from Q4 onwards. However, capex and exports are likely to remain subdued, the company said.